The latest AI tremor carries a familiar scent. After software stocks fell more than 20% YTD on fears that AI could disrupt software companies’ business and revenue models, markets are now pricing in ‘who is next’: Insurers facing automated underwriting, logistics platforms squeezed by agentic optimisation, or property models reshaped by data-rich pricing. It is tempting to call this a regime break. Our working view is more banal – and usually more useful: technology shocks tend to be overestimated in the short term and underestimated in the long term.
Under the surface, the bigger rotation continues: away from ‘US only’ and towards breadth. Our number of the week below reflects this – record inflows into international equities and a style shift into value, small caps, emerging markets, and equal-weight exposures. In that context, AI’s real message is not just disruption risk but dispersion: more winners, more losers, and lower correlations. And for those despairing at airport queues and toll-road fees: ‘If you can’t beat them, join them’.
AI and software: Insights from the ‘retail apocalypse’
The rapid rise of e-commerce since 2013 offers valuable insights into the potential disruption from AI agents. Most importantly, valuations matter little in a disruptive environment. All that matters are competitive advantages and the ability to embrace transition opportunities while avoiding transition risks.
The potential disruption facing software from AI agents and the indiscriminate selling of their stocks brings back memories of the ‘retail apocalypse’. E-commerce did not wipe out every retailer overnight, but it did create violent valuation resets, short squeezes, and long stretches where price action was a better guide than fundamentals. AI may do the same across services. The implication is inconvenient: some of the best opportunities may be trades rather than investments – until the new winners are clearly visible. Financials are a case in point. The sector will not disappear, but its economics, distribution, and risk models could shift faster than quarterly numbers may capture. Investors will have to stay on their toes all the more.
The leaders, those that embraced the opportunity from e-commerce, expanded their price/sales ratio by around 60%. The laggards, those that stuck to their brick-and-mortar business, saw their valuations shrink by more than 60%. The period after the pandemic served as an accelerator, further pressuring the valuations of the laggards while lifting those of the leaders. There was no mean-reversion. We would not be surprised to see a similar spread over the years. The differentiating element will be their competitive advantage, which to uncover requires a thorough understanding of the business models.
As a general guideline, we are much more optimistic about companies that provide mission-critical and embedded enterprise software or cybersecurity solutions. Meanwhile, we are most concerned about consumer-focused software solutions or those that provide easy-to-automate processes.
Equity strategy: We expect the rotation to continue
Recent style and sector rotations show the market is broadening beyond mega-cap technology concentration. We view these ongoing rotations as a healthy development and expect them to continue in the near term.
After three years during which US mega‑cap technology stocks drove the majority of global market gains, equity markets are now undergoing a notable and healthy rotation. US equities account for roughly 80% of the equity ETF universe, even though the country represents only about 15% of global GDP – creating a level of concentration within the US big technology complex that had become increasingly unsustainable.
Market dynamics are clearly shifting. Market breadth has reached its highest level since 2001, with 63% of S&P 500 companies outperforming the benchmark. This broadening is also reflected in capital flows. According to Bloomberg data, non-US equity ETFs attracted USD 39.7bn in January 2026 alone – the highest monthly inflow ever recorded – while emerging market equity ETFs have recorded 15 consecutive weeks of inflows. A clear style rotation has also taken hold: global value stocks have outperformed growth since early November, and small caps are ahead of large caps by 9.3%, following four years of sharp underperformance for both segments.
What does this mean for investors?
We see these rotation developments as both constructive and timely. Concentration risk is easing as previously crowded trades in the US big-technology complex unwind, creating room for diversification. European equities stand out with expected earnings growth of around 8% and improving fiscal support, especially within cyclical and value‑oriented segments. At the same time, maintaining an allocation to high‑quality defensive exposures (such as Swiss equities and healthcare) can provide stability. Asian markets, including Japan, India, and China, are also benefiting from renewed capital rotation, while the global emerging market equity asset class is strongly supported by solid earnings upgrades and the tailwinds of expected Fed easing.